Investigation of concentration of economic power; monograph no. 1[-43] (1940)

CONCENTRATION OF ECONOMIC POWER 7 The battle for control of sound, started before the crash, now came to its climax. For years, various groups had been experimenting with sound. Warner Bros, developed Vitaphone; Fox developed Movietone. Through alliances with Warner and Fox, Electrical Research Products, Inc. (E. R. P. I.)' gained control of their patents. The Radio Corporation of America (R. C. A.)^ with patent rights to Photophone was E. R. P. I.'s main contender. E. R. P. I. was successful in signing long-term agreements for the use of sound equipment with five of the large producers (M-G-M, Paramount, United Artists, First National, and Universal). These agreements were so successful that R. C. A. was virtually eliminated from the field.® Through the Radio-Keith-Orpheum Co. and its large theater holdings, R. C. A. made some headway, but its field was still limited, R. C. A. finally filed a complaint charging unlawful restraint of trade by American Telephone & Telegraph and its affiliates. In 1935 a peaceful agreement was concluded between the two corpora- tions which gave R. C. A. new and substantial rights. The entire motion picture industry, therefore, through patent ownership is indirectly under a monopoly control far beyond the early aspirations of the Motion Picture Patents Corporation.'" Despite lowered consumer purchasing power due to the depression, sound was at first successful in keeping up the industry's box office receipts. However, the installation of sound equipment in both studios and theaters was a heavy financial burden. As the novelty of sound wore off, box office receipts fell drastically, and the industry finally felt the grip of the depression. The big theater holdings and real estate investments of the motion picture companies swiftly depreciated. Most of the large companies experienced financial difficulties. In 1933 Paramount was adjudicated bankrupt; R-K-0 and Universal went into receivership; the Fox Film Corporation was reorganized. Many of the theaters which had been acquired during the earlier program of expansion were dropped. From 1930 to 1935 the number of theaters owned by the major companies declined from 3,600 to 2,225." One of the consequences of the depression was the enactment in 1933 of the National Industrial Recovery Act. This law required that codes of fair competition, including guarantees of minimum wages, maximum hours, and collective bargaining for labor, and provisions restricting unfair trade practices, be set up for the various industries. The motion picture industry was obliged to adjust itself to the restrictions of a code, but the essential framework of the industry remained unclianged. The Code of Fair Competition for the Motion Picture Industry, approved November 27, 1933, provided for a Code Authority to administer the code, consisting of five members representing the affiliated interests, five representing unaffiliated interests, three repre- ' E. R. P. I. is a subsidiary of Western Electric, which is a subsidiary of American Telephone & Tele- graph, Morgan-controlled. > Subsidiary to General Electric, Rockefeller-controlled. ' !Jhese agreements made it impossible for exhibitors to use R. C. A. sound equipment in theaters with E. R. P. I. equipment. In the fall of 1928. 90 percent of the sound pictures produced were recorded on E R. P. I. equipment. By the end of 1928 only 95 theaters in the United States contained non-Western Electric reproducmg apparatus, while 1,046 theaters had installed Western Electric equipment. (A. R. Daniehan, A. T. A T., The Story of Industrial Conquest. Vanguard Press, New York, 1939 pp. 145-149.) >o Jacobs, op. cit., p. 421. 1' "Standard Trade and Securities," published by Standard Statistics Company, "Theaters and Motion Pictures," issue of February 20, 1935, p. TH-47.